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(2/2) The (Pragmatic) Token Maxi: an Investor's Perspective

Updated: Nov 24, 2022

Fwiw, I'm neither a historian nor a fortune-teller. I have but my intuition and my best attempt at painting the long arc of history: where we are, what's ahead, and what's needed (especially as an investor) to navigate the muddy waters to get there.

Bear with some storytelling and simplification.

Part 1: From Digital Feudalism to Ultra-Liquid Capitalism Part 2: The (Pragmatic) Token Maxi (This essay)


Part 2: The (Pragmatic) Token Maxi

In Part 1 I laid out the path from cyber feudalism to ultra-liquid, highly-granular crypto Capitalism. Part 2 is (finally) musings of a pragmatic token investor on what to do about it.

2.1 Tokens are destiny for crypto bulls

As we illustrated in Part 1, tokens (and "pools" where liquidity for tokens congregates) ARE the core atomic units of digital Capitalism, and the "merchant class" (speculators, arbitrageurs, exchanges, financialization, etc.) around them ARE the backbone of this new regime.

Unsurprisingly though, the current flavor of the bear market is "long infra, B2B, cashflow-generating stuff, and equity of real businesses", "short xyz-Fi, short worthless empty tokens, short monkey pictures and degen experimentation of tokens and leverage". We are quite happy to take the other side of the bet.

One has to look beyond the current specific instantiation of tokens to see the long-term arc of history. Never in our lifetimes have we ever seen the emergence of a totally new asset class-- no, a totally new way of asset, which commands almost infinite degrees of programmability, granularity, and interoperability. ICOs, governance tokens, yield-bearing tokens (stETH), and monkey JPEGs are cool, but we have barely scratched the surface of what's possible.

In a narrow sense, tokens don't turn mediocre projects into innovative strokes of genius. But at a higher level, [tokens + pools] IS the engine for innovation in crypto.

And the markets have spoken loudly in the past. Hardly any venture or equity investments on crypto projects have kept up with the returns on related native tokens during the same time frame. Accounting for the high barrier of access, limited allocation quota, and years of illiquidity, historical evidence strongly suggests that holding the underlying crypto assets directly is a strictly preferable strategy.

Coinbase venture return vs. BTC & ETH

Opensea venture return vs. BAYC & Crypto Punk

This bear market again presents an attractive entry for public market token investors, while primary market valuations remain relatively hefty. If you aren't here to see the light of the emerging crypto Capitalism and directly capture the token and free markets that underpin it, what are you doing in crypto?

2.2 The Near-Term Catch

But where's the catch? A pragmatist always sees the catch. The catch is that crypto isn't isolated from our meatspace reality (despite CT echo chamber). This is most viscerally felt by market practitioners, as tokens still trade pretty much like liquidity proxies on steroids, regardless of the hopium that they "should" theoretically be a class of their own. IMO, the following two things will have a great impact on crypto as an industry and crypto markets in the next 12-36 months.

2.2.1 Regulatory Backfire

As if Luna and 3AC weren't enough to invite strong regulatory backfire, FTX (likely the biggest financial fraud of the century) made sure crypto as an industry will face its worst year of regulatory clampdown since inception.

Regulatory clarity is positive in the long run, but the uncertainties in this process will continue to wreak havoc in token markets. Others have way better expertise, so I won't opine on the specifics.

2.2.2 Multi-Year Detox from Everything Bubble

Things don't just go back to where they were after a 20 yr remarkable mega bull market, fueled by deflationary growth, globalization, and QE -- all of which are in full reverse mode. What we are experiencing, and will continue to experience for quite a few years, is a long overdue detox from the Everything Bubble. Bill Gurley summarizes it best.

For investors, this means:

  • We will go back to actual risk-taking for reasonable returns. Investors will again have to *actually* underwrite fundamental business risks for high returns, not just piggyback on the tail of liquidity.

  • Realism, not faith (often misguided as "conviction"), will again be rewarded. Observe and analyze how markets are, not how we wish they were.

  • For most investors without an infinite time horizon, superpowers for picking the right bets, or the hearts of iron, "timing the market" will actually determine your "time in the market".

2.3 Final Takeaways

Most (even crypto natives) aren't taking enough risks and being ambitious enough on crypto. By far the biggest prize is the journey toward crypto-enabled ultra-liquid, highly-granular Digital Capitalism.

  • Tokens (and "pools", and "exchanges" built around them) ARE the most important primitive to this coming digital Capitalist economic structure.

  • Tokens are therefore destiny for crypto bulls. Historical returns back this up.

At the same time, having only operated in a mega bull market and little experience with other asset classes, crypto-native investors will need to adjust their perspective of risk to survive the New Normal.

The token Maxi in me screams "generational buying opportunity on the asset class". The pragmatist in me murmurs "yeah but let the dust settle, the real builders emerge from the tourists, the regulation cloud clears, and let's unlearn the wrong lessons from a historical bull market".

Not investment advice.


Simiao Li



Twitter: @simiao-li

Telegram: @SimiaoLi

DMs are open.


Twitter: @GMMaverickCap

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